March 8, 2011

WHAT TURTLE TRADING CAN TEACH US

All beginning traders lack one key ingredient for success: experience. Experience is simply exposure to a particular activity over an extended period of time. Good judgment is a by-product of experience and is necessary for success in all areas of life, from driving, cooking, golf, to surgery, etc, as well as, you guessed it, stock and options trading. We can sum it up as follows:

EXPERIENCE = TIME + SPECIFIC ACTIVITY = GOOD JUDGMENT

Unfortunately, very few beginning traders have enough “education” money to succeed at trading because good judgment requires that a person remain focused on a specific activity long enough to draw sound conclusions. In other words, good judgment is based on trust in the specific activity without doubting its overall effectiveness.

A very good example is riding a bike. Once you learn to ride, you do not have to relearn to ride again as your judgment takes over and you trust yourself to balance, steer, brake, etc. without having to really think about doing it. The activity itself becomes automatic. Same with driving a car. After a while, you do not have to think about braking, looking in your mirrors, utilizing turn signals, etc. Driving a car becomes automatic. Good judgment becomes automatic.

Beginning traders usually lack sound judgment because 1) they do not focus on a specific activity; 2) they do not focus on an activity for an extended period of time (and I do not mean a few days); and 3) they do not trust themselves enough to arrive at a good, sound conclusion about their trading method since the test period is inadequate.

So, how long does it take for a trader to become successful enough to practice sound judgment?

DEPENDS ON WHETHER OR NOT YOU WANT TO DRIVE A CAR OR FLY A 747

There is much debate over how long it takes for a trader to move from the “newbie” level to the “professional” level (by which I mean moving from losing money to making money on a consistent basis). The answer really depends on the initial approach: do you want to learn to fly a 747 or would driving a car do? In other words, would you want your education to take an extended period of time (and money) as you try to learn everything there is to learn about the Market (impossible) or would you prefer the simple approach? Remember: good judgment is based on a specific activity over an extended period of time. You can control the experience (=time) by focusing on a specific activity. By focusing on a specific activity you can shorten the learning curve. It is completely up to you.

My one idea for shortening the learning curve? Keep it simple right from the start with a set of simple rules for entering and exiting (at a profit AND loss) the market. Period! This is much like the trading experiment from the early 1980s known as the Turtle Experiment as outlined in Curtis Faith's book Way of the Turtle. I won’t go through the details here but suffice it to say that this experiment took a few people with a specific set of rules and made traders out of them (and a lot of money!).

The best part: the training only took a few weeks! Why? Because the Turtle Trading System focused on a specific set of rules (activity) over an extended period of time and provided the traders the self trust to make sound judgments! Once achieved the trading became automatic.

The rules have been recently published for anyone to see and you can download them here: ORIGINAL TURTLES.

“I have found that the quickest way to move from point A to point B is to make sure that C through Z do not get in the way.”